1 electricity, 1 share of sugar to buy for substantial gains in 1 year, as suggested by ICICI Direct

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1. Dixon Technologies:

About the action: Dixon Technologies is the leader in electronics manufacturing in India

(EMS) and one of the main beneficiaries of the government’s PLI program.

• Dixon operates in both Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM)

• Revenue growth was observed in the second quarter of FY22, although the lag in price increases weighed on gross margins. Revenue increased but EBITDA and gross margin declined. Profitability also increased 20% year on year to reach Rs. 63 crore.

• High RoE, approximately 20% RoCE, 24%, respectively (three year average).

Considering the huge momentum in stocks which has gained 9 times over the past 4 years, investors are suggested to buy the stock, valuing it at Rs. 5,990 or 51x P / E on FY24E EPS. This means a 20% increase from the current price point of Rs. 4,993.55.

Main triggers for future price performance:

• India’s EMS industry is valued at $ 23.5 billion. Dixon currently holds 3-4% market share, leaving room to expand and grow

• National mobile production is expected to be multiplied by 5 to reach Rs. 10.5 lakh crore per FY26 under the PLI regime. Dixon is one of the main beneficiaries

• New segments such as electronic / computer products, telecommunications products and LED lights and AC components will generate future revenue for Dixon.

Alternative stock idea: Besides Dixon, ICICI Direct also likes Havells in our coverage

• The trigger for future revenue growth for Havells would be a recovery in Lloyds revenue and improved margin.

• BUY with a target price of Rs. 1545.

2. Dalmia Bharat sugar:

2. Dalmia Bharat sugar:

For this sugar maker, ICICI Direct has set a price target of Rs. 610, which implies a potential return of 54.7% from the current price of Rs. 394.3.

The company is considered to be performing consistently and is on the cusp of achieving net debt exemption status.

Key points to remember about the company

• The company expands its annual sugar cane and molasses and grain distillery capacity from 8.5 crore liters to 21 crore liters, which would be phased in by December 2022

T2FY22 results: Due to the increase in exports, the company has delivered a consistent set of figures. Sales remained stable on a year-over-year basis, EBITDA also saw a marginal decline and PAT increased more than 6% year-on-year, helped by lower interest charges.

Broker’s expectations for future actions

“We are forecasting a 2.5x increase in distillery volumes to increase profits with a 16.1% CAGR in fiscal years 21-24E. We maintain our PURCHASE rating on the stock

Target price and evaluation: We rate the action at | 610, giving a multiple of 14x earnings for fiscal year 23, ”the report adds.

Main triggers for future price performance:

• DBS is the fastest in using the B-heavy route, sugarcane juice and grain to produce ethanol. Distillery volumes to increase 2.5 times to 21 million liters by FY24

• The company has been aggressive in exporting sugar and using higher world prices for white sugar. The cost of freight is much lower considering its proximity to the ports

• With increasing profitability and reducing sugar inventories, DBS would generate a cumulative free cash flow of Rs. 626 crore in the next three

years despite approximately Rs. 700 crore capex

Alternative stock idea: The company is also bullish on Balrampur Chini. The company is the second largest and one of the most efficient sugar companies in India. With sugarcane juice, B-heavy, the company is

also using grain-based ethanol to take advantage of the ethanol opportunity in India. We value the stock at Rs. 515 / share with a recommendation to BUY, “the report adds.

Disclaimer:

Disclaimer:

The two scripts mentioned here are taken from the ICICI Direct report and readers should not interpret them as a recommendation to buy these stocks. Investing in the stock market is risky. Please do your own study and analysis.

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